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2020 (4) TMI 601 - AT - Service TaxReversal of CENVAT Credit - common input services have been used in the manufacture of excisable goods as well as in the trading activity - non-maintenance of separate records - recovery of 5%/6% of the profit margin of traded goods in accordance with Rule 6(3)(i) of the CENVAT Credit Rules, 2004 - HELD THAT - Inasmuch as at the Thane unit, the appellant had taken credit on the basis of the ISD invoices issued by their Head Office which includes credit on common input services attributable to trading activity undertaken from their depots situated all over India; and also the credit availed on input services used in the manufacturing activity and distributed among all the three manufacturing unit including the Thane unit. In these circumstances, directing the Thane unit to reverse the proportionate credit attributable to trading activity of other two unit would be incorrect and cannot be sustained in law. Therefore, the appellant s Thane unit would be required to reverse the CENVAT Credit availed on common input services relatable to trading activity availed by them at their Thane unit on the invoices issued by their Head Office. To ascertain the quantum of CENVAT Credit availed at Thane unit and attributable to the trading activity, the matter is remanded to the adjudicating authority - Appeal allowed by way of remand.
Issues:
Appeal against Orders-in-Original passed by the Principal Commissioner of Service Tax - Common issues - Availment of CENVAT Credit by the appellants on invoices issued by their Head Office as an 'Input Service Distributors' (ISD) - Allegations of engaging in trading activity - Recovery of profit margin of traded goods - Application of Rule 6(3)(i) of the CENVAT Credit Rules, 2004 - Failure to maintain separate accounts for credit utilization - Confirmed demands with interest and penalty imposed - Contention regarding trading activity at Thane unit - Reversal of CENVAT Credit - Interpretation of law. Analysis: The judgment pertains to two appeals filed against Orders-in-Original passed by the Principal Commissioner of Service Tax, Mumbai, concerning the appellants' availing of CENVAT Credit on invoices issued by their Head Office as an ISD. The issue revolved around the allegations of engaging in trading activity and the subsequent recovery of profit margin of traded goods under Rule 6(3)(i) of the CENVAT Credit Rules, 2004 due to the lack of separate accounts for credit utilization. The appellants, having three manufacturing units and 27 depots, distributed the credit among units based on turnover. The Revenue sought to recover a percentage of the profit margin from the Thane unit, alleging inadequate record-keeping on common input services for trading and manufacturing. The Tribunal analyzed the submissions and records, emphasizing the necessity to determine if the Thane unit should reverse/pay the demanded percentage of the trading turnover. The appellants argued against the Revenue's approach, asserting no trading occurred at the Thane unit and that credits were proportionate to unit turnover. The Tribunal agreed, stating that demanding the entire credit on trading from the Thane unit was unjustified. Instead, the Thane unit was directed to reverse the credit specifically related to trading activity on ISD invoices. The matter was remanded for quantifying the attributable credit, and no penalty was imposed due to the issue's interpretation of the law. In conclusion, the Tribunal disposed of the appeals by remanding the matter to ascertain the CENVAT Credit availed at the Thane unit related to trading activity, emphasizing the necessity for a proportionate reversal of credit. The decision highlighted the incorrectness of directing the Thane unit to reverse credits not solely attributable to its activities and emphasized the importance of maintaining clarity in credit utilization. The judgment focused on the legal interpretation of Rule 6(3)(i) and the necessity for fair and accurate credit allocation based on actual activities undertaken by the units.
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